The plan applies to federal student loan borrowers.
How much forgiveness will they get?
The amount of debt canceled depends on whether the borrower received a Pell grant to attend college.A federal Pell grant is only given to undergraduate students who “display exceptional financial need and have not earned a bachelor’s, graduate, or professional degree” and “does not have to be repaid, except under certain circumstances,” according to the Department of Education’s Federal Student Aid office. Per data cited by the White House, Pell grants currently only cover a third of the cost of a four-year public college degree, which has led to increased borrowing.
Individual borrowers who make less than $125,000 yearly and married couples or heads of households who make less than $250,000 yearly will have up $10,000 of their federalstudent loan debt forgiven if they did not receive a Pell grant as an undergraduate student, per the FSA website.
Individual borrowers who make less than $125,000 yearly and married couples or heads of households who make less than $250,000 yearly but did receive a Pell grant as an undergraduate student will have up $20,000 of their student loan debt forgiven.
What steps do eligible borrowers have to take?
Nearly 8 million borrowersmay be able to receive debt forgiveness automatically because the Department of Education already has their income information, FSA says.
The Biden administration will launch an application in the coming weeks for borrowers to provide their income information or if borrowers are unsure if the department has their income information already. FSA says the application will be available before the federal student loan repayment pause ends on December 31.
How will future repayments for remaining debt work?
Student loan repayment will be paused again until December 31, 2022, with repayments starting in January 2023.
The Biden administration is also proposing a rule to create a new income-driven repayment plan in whichborrowers pay no more than 5% of their monthly income on undergraduate loans, a decrease from the current10% threshold.
The rule would alsoincrease the amount of income that is considered “non-discretionary income” so no borrower earning below 225% of the federal poverty level will have to make a monthly payment.
For borrowers with loan balances of $12,000 or less, loan balances wouldbe forgiven after 10 years of payments instead of the current 20-year mark, under the proposed new income-driven repayment plan.
And to help prevent a borrower’s loan balance from growing while the individualmakesmonthly payments, under the proposed rule the Biden administration wouldcover unpaid monthly interest, even if themonthly payment is $0 due to the borrower’s income level.